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On February 6, 2025, the U.S. District Court of the Northern District of Illinois declined to issue a preliminary injunction to stop an Illinois "swipe fee" law that would ban certain credit and debit card fees from applying to credit unions while extending a previous preliminary injunction to apply to out-of-state banks. (See our previous coverage of this litigation here, here, and here).
The Interchange Fee Prohibition Act ("IFPA") is a novel law that would prohibit credit and debit companies from charging fees on the tax and tip portions of credit and debit card transactions beginning July 1, 2025. The rest of the transaction, including the price of goods or services, would still be subject to the fees.
In August, banking industry groups filed a lawsuit challenging the state law, arguing that it was preempted by federal banking statutes and regulations. In addition to preemption arguments, they expressed concerns that financial institutions would be unable, from a practical standpoint, to comply with the law by the July 1 deadline. They further contended that the proposed new law would require banks and credit card companies to implement costly new computer systems to distinguish between transaction amounts, taxes, and tips.
In December, U.S. District Court Judge Virginia Kendall issued a preliminary injunction barring the IFPA from applying to federally chartered banks but declined to extend the relief to state banks and credit card companies. After reviewing supplemental briefing from the parties, on Thursday, Judge Kendall further denied an extension of the injunction to credit unions, holding that the Federal Credit Union Act did not preempt the new state law. But Judge Kendall granted preliminary injunctive relief to out-of-state banks operating in Illinois, holding that the Riegle–Neal Interstate Banking and Branching Efficiency Act "likely preempts" the IFPA.
Putting It Into Practice: When it was enacted last year, Illinois' new swipe fee law was a bold and novel change to the payment processing landscape that threatened to upend how everyday payment transactions are processed. The mixed preemption rulings in this pending litigation are likely to create additional uncertainty in that the new proposed law would apply to certain industry participants, but not others. This underscores the key challenges and difficulties that arise when states attempt to pass legislation related to payment systems that are national and international in scope.
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